Friday, May 19, 2006

E3: The Big Picture

I really hated that post on Wednesday about individual E3 game impressions. H-A-T-E-D. If it sounded lame, that’s because it was.

Looking at games at E3 is like being in a nursery. Every game is a baby, and no one’s ever seen an ugly baby.

Well, I have. But that’s another story.

The point is that almost nothing stands out at E3, and if it does, there’s a good chance it’s not real, or it’s not representative of what the game will be like when it actually ships. If it ever does.

So unless something really looks bad—like the 360 version of F.E.A.R.—or it looks freaking incredible—like World at War—nothing’s going to really stand out.

Again, except for Paraworld, which I’m telling you about next week. It features the best RTS control interface I’ve ever seen, and I’m looking forward to sharing all that information with you.

Mostly, though, E3 is a place for strategic insights, not tactical ones. Maybe the individual games blur together, or what is shown to you is not, in the end, very meaningful, but E3 is a great place for spotting trends and direction. In that sense, it’s extremely useful.

So what did I see besides the Sony implosion? Well, in combination with the Wii demo and the Microsoft area, I think I saw enough to help me understand what’s going to happen with the next generation of consoles. And it’s easy to understand, really.

At the end of the last generation, Sony was unquestionably number one, and to a large degree. The Xbox had successfully distanced itself from the Gamecube and was firmly in second place. The Gamecube was totally off the radar screen.

None of us could really envision a future where this order would change in the next generation. The present seen is the future expected. Sony seemed to have such an enormous lead that no one saw them losing it. Nintendo had done so badly with the Gamecube in the last two years that no one saw them coming back. And Microsoft was somewhere in-between.

Think again, my friends. Up is down and what was tarnished is shiny again. E3 was like heading down the rabbit hole, and nothing inside was what we expected. So take a trip with me down the rabbit hole and let’s look at the future of each of the Big Three.

Sony is no longer number one. They cannot win the next generation at $599. They’ve lost the war before they fired a single shot.

Well, they fired one shot—straight into their head.

We want the PS3 to be a game player, but that’s not what Sony wants it be, and we should have seen this coming. The reason Sony keeps saying that the PS3 is “cheap” is because they see don’t see it as an incredibly expensive game machine—they see it as a cheap Blu-Ray player. Over and over again, we’ve heard them focus on the Blu-Ray player, not the PS3 as a game machine.

This is how important Sony believes Blu-Ray is to their future: they’re willing to risk killing the Playstation brand to promote the format. They believe the money to be made if they can establish Blu-Ray as the dominant high-definition DVD format is far greater than what they can make from the PS3 as a game machine.

Don’t believe me just because I’m saying it. In the Eurogamer interview I linked to yesterday, Sony’s UK Managing Director Ray Maguire said this:
"£425 is definitely not a mass market price, no," Maguire admitted.

"But you think about the price, think about the price of just a Blu-Ray player. It will be cheaper than a Blu-Ray player just by itself. So fundamentally we're going to be great value just from that point of view without even looking at the games side."

Gaming is incidental to the fact that it’s a Blu-Ray player. Within a week of E3, Sony has gone from crowing about their dominance to admitting that they’re not priced for the mass market?


Again, within a week of E3, Sony is suddenly starting to position the PS3 as not the market leader. Reading between the lines, this is stunning.

As I said last week, Sony is not number one in the next generation. They’re third.

I'm just waiting for the information to leak on how much the PS3 is costing Sony to make. I wouldn't be surprised at all if it's over a thousand dollars a unit.

Here’s what to expect: very few exclusives for the PS3 beyond what have already been announced. Previously announced games getting canceled. After the launch sells out (with incredibly few units available), expect a software gap that rivals or exceeds Microsoft’s problem with the 360. And wait for this word: “sluggish.” That word will start showing up in reports about the sales of the console—as soon as four months after launch.

It’s a Catch-22 for Sony: if they make units readily available, the low sales will be too readily apparent. If they keep supply artificially scarce, though, so that they can still claim “overwhelming demand,” the installed base will rise so slowly that developers are going to move even further away.

How can they solve this? I don’t think they can. Here’s a Zen koan.
A seeker came into the garden of the wise master and kneeled at his feet. “Oh, Master, I humbly seek your guidance. My company has built a console that is so expensive to produce that they cannot afford to sell it.”

“Then you must make it too expensive to buy,” said the Master, and he hit the seeker on the head with a stick.

Sony: fork: done.

I wrote them off after a series of bizarre series of strategic blunders. My mistake. The Wii is not just an innovative idea for a console—it’s a brilliant business strategy.

Every single person who is loyal to Nintendo (and there are millions) will buy the Wii. Every single one. They have successfully captured 100% of their base.

And you know what other base they’ve captured? Every single kid in the world. Is any kid going to want to use a regular controller after being able to dance around and make dozens of different gestures with the Wii controller. NO. Kids aren’t really going to care how the games look as long as they look decent—they’re going to care how they play. And play is going to be much, much interesting with the Wii controller.

I didn’t understand this until after I was able to use the controller. But there is a very simple kind of happiness that comes with using it—I can’t describe it any more basically than that. And every kid is going to understand that right away.

I said last week that I believed the price point would be $249, but incredibly, that may have been too high. There is widespread speculation this week that the Wii will actually come out at $199.

How many will they sell? Every single one they can make. If they make five million for a worldwide launch, they’ll sell five million. If they make ten million, they’ll sell ten million. There is an inexhaustible demand for a $199 console with a completely unique method of control .

Oh, and don’t forget that the games will be cheaper, too.

Here’s what to expect: in the next three months, everyone and their dog will announce games for the Wii. It’s 1/3 (at $199) the price of the PS3, with 1/3 the development costs (probably less), and 3X (at least) the installed base. Anyone who doesn’t announce a game for the Wii can’t do math.

And don’t be surprised at all if the Wii isn’t number two in the U.S. It could well be number one.

I haven’t mentioned much about Microsoft’s showing at E3, but it was incredibly solid: a ton of games, most of which looked great, and they made no mistakes. They have multiple AAA titles shipping each month from July forward. The Xbox Live Marketplace has been managed extremely well, and Microsoft did a fantastic job of making tons of content available for download during E3.

The Wii’s the best thing that could have happened for Microsoft, given Sony’s price point. Maybe the Wii will wind up having a larger installed base, but given that it costs half what the 360 costs, Microsoft can reasonably claim that they represent entirely different markets, given that the Wii doesn’t support HD. The company Microsoft desperately wants to beat is Sony, and suddenly consumers could purchase BOTH a 360 and a Wii instead of a PS3.

Here’s what to expect: while there will be plenty of Japanese developers supporting the PS3, U.S. and European developers will begin to favor the 360, and over the next eighteen months, that favoritism will become overwhelming. By all accounts, the Cell is an unwieldy processor in programming terms, and Sony has all but planted a flag and said they don’t care about the size of their installed base. Microsoft will have a huge holiday season, because there will be no competition at the high end: if the PS3 does, miraculously, ship in the U.S. in 2006, it will be in incredibly limited quantities and with very few games.

The U.S. market is more than large enough to successfully support two consoles. It has never been large enough, however, to support three. Microsoft is a cinch for first or second in this generation and they have a firm grasp on the high end.

So what could upset this scenario? I’ll be damned if I know. Maybe consumers could rush to buy a Blu-Ray player because of incredibly compelling titles like, um, Species and Hitch, adopting the new technology at an exponentially greater rate than ever before for a consumer electronics device in that price range. Or maybe the Playstation has such incredible brand loyalty that American consumers will line up by the millions to pay 50% more for a nearly identical gaming experience.

Oh, come on. Nobody can get that high. That’s just not happening.

Here’s what Microsoft needs to do: every time Sony mentions how cheap the PS3 is because it has a freaking Blu-Ray player, Microsoft needs to talk about the 360 as a gaming machine, and they need to talk about Xbox Live (which is incredibly robust), and they need to talk about fun. Games and fun.

Isn’t that what this was supposed to be all about, anyway?

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